SABMiller gets takeover approach from AB InBev

SaabiraChaudhuri

Anheuser-Busch InBev NV on Wednesday said it had approached SABMiller PLC about a takeover, paving the way for a deal that would likely value SABMiller well in excess of its $75 billion market capitalization and create a brewing giant that would dominate much of the global beer market.

London-listed SABMiller said AB InBev "has informed SABMiller that it intends to make a proposal to acquire SABMiller." It cautioned that no deal was certain. AB InBev soon followed with its own statement, saying it intends "to work with SABMiller's board toward a recommended transaction." No terms were disclosed.

AB InBev and SABMiller are the world's two largest brewing companies, and a combination would trigger an intense antitrust review around the world.

SABMiller--which makes over 200 beers including Peroni Nastro Azzurro, Pilsner Urquell and Grolsch--operates across six continents. Belgium-based AB InBev makes Budweiser and Bud Light and is the world's largest brewer by market share, with major operations around the world. It has 155,000 employees in 25 countries.

In the U.S., AB InBev and MillerCoors LLC--SAB's joint venture with Molson Coors Brewing Co.--control 70% of the market by volume, according to Bernstein. Combining the two groups' footprint in its current form would amount to roughly 30% of the world's beer market, according to Euromonitor.

Shares in SABMiller soared about 23% after the midmorning statement, which it said was in response to media speculation. Shares in AB InBev were up more than 8% after a brief morning suspension. Shares in other brewers, which would be likely buyers of divested assets from a combined company, rose as well. Heineken NV was up 7% and Carlsberg A/B was up 4.8%.

An approach from AB InBev to SABMiller's board came within the last few days, according to a person familiar with the matter. There was no formal proposal or bid because the companies hope to maintain a friendly dialogue, the person said. There haven't been any meetings yet over a potential deal, the person added.

A tie-up between the two beer giants has long been a subject of speculation, as the global mergers-and-acquisition market has roared back to life.

The Wall Street Journal reported last year that AB InBev had discussions with some banks about possibly financing a deal. At the same time, SABMiller had approached Dutch brewer Heineken about a deal but was rejected, in what was viewed by some as a takeover defense against an AB InBev bid.

This summer, ABI began asking banks to propose possible targets for them to acquire, including SABMiller, said a person familiar with the matter.

Those moves followed a report in The Wall Street Journal earlier this year, saying 3G Capital Partners, which owns a major stake in AB InBev, raised about $5 billion from investors for a new takeover fund.

Speculation renewed Tuesday that a deal could be brewing after shares of SABMiller spiked. Some media outlets theorized that cancellations at two industry conferences in Boston and London by executives at AB InBev and Altria Group Inc., which owns a minority stake in SAB, could be the cause of the market turmoil.

After its shares moved, SABMiller was forced to put out a statement by the Takeover Panel, which determines the rules governing mergers and acquisitions in the U.K. It has set a deadline of 1600 GMT on Oct. 14 for AB InBev to either make an offer or withdraw.

What could be the year's largest acquisition comes amid renewed deal fervor, with the global mergers-and-acquisitions market on pace to hit the highest levels on record. There have been $3.2 trillion worth of deals globally so far this year, up 29% from the year earlier period, according to data provider Dealogic. In the food-and-beverage industry, there has been $127.5 billion worth of deals so far, up 32% from the year-earlier period, Dealogic found.

Bernstein analyst Trevor Stirling noted that SABMiller's share price has been "weak" over the past year, making a deal "much more affordable." Any proposal likely would have to be a mix of cash and shares, or an all-stock offer with a buyback after. For tax reasons, Altria and the Santo Domingo family--which own large stakes in SABMiller--would prefer to receive shares, Mr. Stirling said.

Although a tie-up between the world's two biggest brewers would hand control of nearly one-third of global beer supply to one company, analysts have said antitrust issues aren't insurmountable. AB InBev likely would have to sell SABMiller's stakes in two joint ventures, MillerCoors in the U.S. and CR Snow in China, which SAB co-owns with China Resources Enterprise Ltd.

U.S. antitrust authorities would most certainly require a merged AB InBev and SABMiller to divest assets. AB InBev already has a roughly 45% U.S. market share, and MillerCoors LLC, in which SABMiller owns a 58% economic stake, has a roughly 25% U.S. market share.

Molson Coors, which owns the other 42% of MillerCoors, would be the most likely candidate to acquire SABMiller's U.S. business. The Denver-based brewer of Coors Light and Molson Canadian has the right to increase its MillerCoors stake to 50% if SABMiller is acquired and hasn't ruled out increasing its stake in the past.

A spokesman for China Resources Enterprise said he was "unable to confirm anything due to a confidentiality agreement between ourselves and SABMiller."

Buying SABMiller would catapult AB InBev into market-leading positions in Colombia and Peru, as well as many countries in Africa where the Budweiser maker has little presence. In the Middle East and Africa, SAB has 40% of the market while AB InBev has just 0.6%, according to Euromonitor.

AB InBev has a history of reshaping the beer industry with large-scale acquisitions. In 2004, Brazil's AmBev and Belgium's Interbrew merged to create the global No. 1 brewer by volume, InBev. Four years later, the new company bought Anheuser-Busch in a $52 billion deal and became AB InBev, a cosmopolitan company based in Leuven, Belgium, but run by a mostly Brazilian group of executives in Manhattan. It later bought Mexican brewer Grupo Modelo SAB de CV in a friendly deal for $20.1 billion.

A takeover approach for SABMiller by AB InBev recently gained urgency amid slowing beer sales around the globe, including the U.S., AB InBev's most-important market, where small "craft" brewers are swiping market share.

AB InBev's net profit plunged 32% in the second quarter as sales contracted in four of the company's six markets, including the U.S. and Brazil. It blamed weak economic conditions and poor weather in several key markets, as well as a tough comparison with a year-earlier period that included the soccer World Cup in Brazil.

The company's second-quarter revenue in the U.S. fell 1.7% to $3.6 billion as it struggles to revive the Budweiser brand. Even Bud Light, which accounts for nearly one of every five beers sold in the U.S. and has remained relatively strong, lost ground slightly in the quarter.

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